To that end, the Pembina Institute and the Canadian
Energy Research Institute were commissioned to complete a study
on the role of fiscal policy in promoting development of hydrogen
technologies and reducing greenhouse gas (GHG) emissions in Canada.
This exercise produced two studies, a Baseline Report and an Economic
Analysis Report. The Baseline Report describes the state of development
of hydrogen technologies in Canada and the existing policy framework;
it provides an initial evaluation of a range of fiscal policy
options for promoting development of hydrogen technologies. The
Baseline Report identifies seven fiscal policies capable of providing
direct incentives to hydrogen technologies while explicitly addressing
a major barrier that currently limits the technology’s market
penetration. The seven fiscal policies are: investment tax credits;
producer tax credits; accelerated capital cost allowances (CCAs);
research and development (R&D); grants; consumer tax credits;
and pilot projects. The initial evaluation focuses on producer
incentives, designed to reduce the production cost of hydrogen
technologies, and consumer incentives, designed to reduce the
end-use cost of hydrogen technologies. More specifically, the
fiscal policies considered in this analysis reduced the cost of
hydrogen production, stationary fuel cells, fuel-cell vehicles
and buses, and hydrogen internal combustion engine (ICE) vehicles.
The Economic Analysis Report presents the results of the modelling
exercise undertaken to test the impact of these fiscal policies
on particular hydrogen technologies.
A national macro-economic model — the Energy
2020 model — was used to test the effect of the producer
and consumer incentives on the market penetration of hydrogen
technologies and associated GHG emissions. The model simulated
two methods of hydrogen production: steam methane reformers (SMRs)
and electrolysis. The modelling began with a reference case, or
‘business-as-usual’, model, to which producer and
consumer incentives were added (the ‘fiscal scenario’
model). The results presented below and in the Economic Analysis
Report reflect the impact of a combination of producer
and consumer incentives equivalent to a 25-percent decrease in
production costs. For the transportation sector, the two different
methods of hydrogen production were simulated and the fiscal results
presented for both.
In all relevant sectors, the fiscal policies resulted
in an increased demand for energy associated with hydrogen technologies.
In the transportation sector, while the energy demand associated
with hydrogen technologies was not significant in absolute terms
—constituting between 0.03 and 34.87 petajoules (PJ) of
demand in 2030, depending on the particular region — the
increase in hydrogen-related energy demand was significant.
Nationally, energy demand associated with hydrogen-related vehicles
increased from 64.36 PJ in 2030 in the SMR reference case and
62.24 PJ in 2030 in the electrolysis reference case, to 96.26
PJ in 2030 in the SMR fiscal scenario model and 93.25 PJ in 2030
in the electrolysis fiscal scenario model — an increase
of almost 50 percent. In terms of the number of vehicles, the
fiscal scenario model led to an increase of 47,312 fuel-cell vehicles,
33,371 hydrogen ICE vehicles and 218 fuel-cell buses in the case
of hydrogen produced from SMRs. Similar results were realized
for hydrogen production using electrolysis. On a regional basis,
the fiscal scenario model resulted in an increase of over 45 percent
in hydrogen-related energy demand for most provinces and territories.
Like the transportation sector, the residential
building sector and the commercial sector realized an increase
in energy demand associated with stationary fuel cells as a result
of the application of fiscal policies. In the residential building
sector, energy demand from stationary fuel cells increased from
2.61 PJ in 2030 in the reference case to 14.45 PJ in 2030 in the
fiscal scenario model, an increase of 454 percent. Similarly,
in the commercial sector, energy demand from stationary fuel cells
increased from 0.41 PJ in 2030 in the reference case to 2.81 PJ
in 2030 in the fiscal scenario model, an increase of 592 percent.
In terms of the number of stationary fuel cells, 15,770 more stationary
fuel cells were introduced to the residential sector by 2030 as
a result of the fiscal scenario model, while the increase was
90 for the commercial sector.
In the fiscal scenario model, GHG emissions associated
with the transportation, residential and commercial sectors declined
as the market penetration of hydrogen technologies increased.
In the transportation sector, reductions in emissions equalled
1,240 kilotonnes in 2030 for hydrogen produced from SMRs. If the
hydrogen is produced from a source with almost no GHG emissions
(i.e., wind or nuclear power), the reductions in emissions would
increase to 2,650 kilotonnes in 2030. The penetration of stationary
fuel cells into the residential and commercial sectors led to
a decline in GHG emissions of 710 kilotonnes from these sectors
by 2030. Taking into account the impact of mobile and stationary
fuel cells, total GHG emissions in Canada would decline by 1,940
kilotonnes for hydrogen produced from SMRs. These figures include
GHG emissions associated with hydrogen production. Taking into
account only those emissions associated with hydrogen consumption
(i.e., assuming that the hydrogen is produced from zero-GHG- emission
sources, or that any GHG emissions are captured) led to reductions
in emissions of 3,360 kilotonnes for consumption of energy using
hydrogen produced by SMRs and 3,370 kilotonnes for consumption
of energy using hydrogen produced by electrolysis.
The modelling analysis revealed that the reduction
in GHG emissions as a result of the market penetration of hydrogen
technologies comes at a fairly high cost per tonne, due to the
combined effect of the limited reductions in GHG emissions that
were actually realized and the existing cost barriers associated
with the development of hydrogen technologies. The producer and
consumer incentives reduced capital and operating costs by 25
percent each; however, given the high costs associated with hydrogen
technologies (initially 50 percent more than the capital costs
associated with conventional technologies in the transportation
sector), the magnitude of funds required to achieve these reduced
costs was significant. In other words, the high costs of the fiscal
policy and the relatively limited reductions in GHG emissions
that were achieved represented a high cost per tonne of reduction.
This analysis revealed that fiscal policy is capable
of facilitating an increase in the market penetration of hydrogen
technologies in the transportation, residential and commercial
sectors. For all sectors, and in all regions in Canada, the introduction
of fiscal policies led to an increased demand for energy associated
with hydrogen technologies. This result held true on an absolute
basis and also as a percent of total energy, with hydrogen technologies
capturing a greater share of total energy when fiscal policies
were in place. Despite these results, the market penetration of
hydrogen technologies was still relatively minor and the reduction
in GHG emissions that was achieved was also relatively small,
even with the fiscal policies.
